Higher yields reflect investor concerns over “this huge overhang of federal debt which we have never seen before,” Greenspan said in an interview today on Bloomberg Television.

“I’m very much concerned about the fiscal situation,” said Greenspan, 84, who headed the central bank from 1987 to 2006. An increase in long-term interest rates “will make the housing recovery very difficult to implement and put a dampening on capital investment as well.”

No really?

Why don't you go on to explain what happens when the yield rises and the government is borrowing and spending at a rate of some 10% of GDP?

That would be a problem, right?  It would be an even more serious problem if we took the current GDP (~14 trillion or so) and then accounted for just the on balance sheet guarantees - that is, the total debt (~$12 trillion or so plus the $5 trillion in Fannie and Freddie that Geithner has repeatedly said the Treasury will "backstop" - legal requirement to do so or no.)

This, by the way, is over 120% of GDP for debt, well beyond what is considered "reasonably safe."

This is some sort of "surprise"?   It is now worthy of comment by the "Maestro", more than two years into the insane public spending policies of both the previous and this administration?  Why wasn't it worthy of comment in 2007?  2008?  2009?  This pattern of "how we bail out people" began in 2007, if you recall.

Then there's Bernanke:

Chairman Ben S. Bernanke told legislators yesterday that “restoring the size and composition” of the Fed’s record $2.32 trillion balance sheet to a “more normal configuration” is a long-term policy goal. St. Louis Fed President James Bullard said in an interview the central bank must start making plans now for future asset sales.

Yeah, right.  Let's cut the crap here - The Fed has bought $1.4 trillion in mortgage securities - all Fannie and Freddie paper of one form or another - as an attempt to maintain the popped housing bubble.  They have, in fact, bought more than 80% of the issuance during the last year - that is, they are the market.

“The economy continues to require the support of accommodative monetary policies,” Bernanke said in testimony to the House Financial Services Committee. He said the central bank will be ready to tighten credit “at the appropriate time.”

These policies are not "accommodative monetary policy."  They are an intentional distortion of the housing finance market entered into for the express purpose of attempting to prop up bubble prices in housing.

The simple fact of the matter is that The Fed is trapped.  If they sit on these securities then they will take the credit losses, if any, and be forced to go to Treasury to backstop them.  But that's counter-productive since Treasury has no actual cash and will have to issue even more debt in order to come up with the money!

This policy action was a clean mistake and must be both recognized as such and reversed.  Long rates are dramatically below where they should be, and this has done nothing but attempt to kick the can with regard to the housing price correction that must come if we are to ever stabilize the housing market and return housing to an affordable area of finance for American consumers.

The longer we continue to allow these insane distortions of the market to continue the worse the damage will be when, not if, the manipulations fail - and fail they will, as they always do.